A RESEARCH NOTE ON KEYFITZ THE DEMOGRAPHICS OF UNFUNDED PENSIONS

Keyfitz (1985), 'The demographics of unfunded pensions', discusses the performance of pay-as-you-go old age insurance plans under different financial structures. One arrangement is to pay a fixed pension to retirees and collect the necessary contributions from the working population. Another is to fix the contribution per worker and distribute whatever monies are collected to the retirees. Unfortunately, equity problems arise in a pay-as-you-go plan when the population is not stable. Generally, large cohorts will receive greater rates of return than small cohorts when the pension is fixed, while small cohorts will receive greater rates of return when the contribution is fixed. Social security analysts in the U.S. have been concerned with minimizing inequities in cohort rates of return. In considering the US population in 1980, Keyfitz shows that disparities in cohort rates of return are less under a fixed contribution scheme than under a fixed pension scheme. This research note points out that Keyfitz's finding is limited to the specific situation in 1980. When analyzing in a broader framework the mechanics of unfunded pensions and their interaction with nonstable populations, the reverse is true: fixing the pension yields less disparity in cohort rates of return than fixing the contribution. © 1991 Elsevier Science Publishers B.V.